Section FA 2 — Income Tax Act 2007: Recharacterisation of certain debentures

FA 2 Recharacterisation of certain debentures Treatment of debenture and interest (1) A profit-related debenture or a substituting debenture is treated for tax purposes as a share described in paragraph (b) of the definition of share in section YA 1 (Definitions), and the interest payable under the debenture is treated as a dividend. No deduction (2) A company issuing either a profit-related debenture or a substituting debenture is denied a deduction under section DB 10 (Interest or expenditure connected to profit-related or substituting debentures) for— (a) interest payable under the debenture; or (b) expenditure or loss incurred in connection with the debenture; or (c) expenditure or loss incurred in borrowing the money secured by or owing under the debenture. When interest fixed to certain rates or indices [Repealed] (3) [Repealed] Profit-related debenture (4) A profit-related debenture — (a) means a debenture with a rate of interest that is set from time to time by reference to— (i) the dividend payable by the company issuing the debenture; or (ii) the profits of the company issuing the debenture, however measured: (b) does not include a debenture under which the interest payable is determined by a fixed relationship to— (i) banking rates; or (ii) general commercial rates; or (iii) economic, commodity, industrial, or financial indices, but the application of this subparagraph is subject to section FZ 1(3) (Treatment of interest payable under debentures issued before certain date): (c) does not include a debenture treated as a share under section FA 2B (Stapled debt securities). Substituting debenture (5) Substituting debenture — (a) means a debenture issued by a company to a shareholder or class of shareholders of the company when the amount of the debenture is determined by reference to 1 or more of the following aspects of the shares in the company or another company held by the shareholder or class of shareholder at the time the debenture is issued or at an earlier time: (i) the number of shares: (ii) the available subscribed capital of the relevant company calculated under the slice rule set out in section CD 23 (Ordering rule and slice rule): (iii) some other reference to the shares: (b) includes a debenture issued to a shareholder or a class of shareholder when the amount of the debenture is determined by reference to 1 or more aspects of the shares as described in paragraph (a) held by the shareholder in a company other than that issuing the debenture, whether or not the company is being, or has been, liquidated: (c) does not include a debenture that is a convertible note: (d) does not include a debenture treated as a share under section FA 2B . Shares or available subscribed capital in another company [Repealed] (6) [Repealed] Amount of debenture (7) For the purposes of subsection (5), the amount of the debenture means the principal sum secured by or owing under the debenture. Terminating provisions (8) For the treatment of debentures issued before 8 pm New Zealand standard time on 23 October 1986, see section FZ 1 . Relationship with agency rules (9) Section HD 14 (Companies issuing debentures) does not apply to a profit-related debenture described in this section, or to an amount paid or payable under it. Defined in this Act: amount , available subscribed capital , company , convertible note , debenture , deduction , dividend , interest , liquidation , loss , pay , profit-related debenture , share , shareholder , slice rule , substituting debenture , tax , Compare: 2004 No 35 ss FC 1 , FC 2 Section FA 2(3) heading: repealed (with effect on 1 April 2008), on 6 October 2009, pursuant to section 201(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section FA 2(3): repealed (with effect on 1 April 2008), on 6 October 2009, by section 201(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section FA 2(4): substituted (with effect on 1 April 2008), on 6 October 2009, by section 201(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section FA 2(4)(b)(iii): amended (with effect on 1 April 2008), on 6 October 2009, by section 201(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section FA 2(4)(c): added (with effect on 1 April 2008), on 6 October 2009, by section 201(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section FA 2(5): substituted (with effect on 1 April 2008), on 6 October 2009, by section 201(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section FA 2(5)(c): amended (with effect on 1 April 2008), on 6 October 2009, by section 201(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section FA 2(5)(d): added (with effect on 1 April 2008), on 6 October 2009, by section 201(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section FA 2(6) heading: repealed (with effect on 1 April 2008), on 6 October 2009, pursuant to section 201(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section FA 2(6): repealed (with effect on 1 April 2008), on 6 October 2009, by section 201(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section FA 2(7): substituted (with effect on 1 April 2008), on 6 October 2009, by section 201(7) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).